Q&A: Alan McCappin answers questions on child benefit tax

Earlier this month, Alan McCappin, Practice Manager at Welling, Kent-based Bradleys Accountants Limited, highlighted the fact that higher income families that receive child benefit will have to pay fines if they have failed to register for self-assessment tax return. You can read the full article here.

We gave everyone the opportunity to put their questions directly to Alan - and received a fair number of questions on the child tax benefit changes that came into force in January 2013.

Q1: A.D, Head of Tax, asks, “HMRC state they believe 165,000 parents who should have registered haven't. I do have to question whether it was appropriate to bring this benefit within the scope of self assessment. HM Revenue & Customs to quote a figure of 165,000 clearly can reconcile the figures they have on earnings with child benefit paid so why invoke a filing obligation, just send out bills!”

Alan McCappin, Bradleys Accountants:I totally agree with your point, it is yet another filing burden put upon the UK tax payer. As you state, they have the child payment information and employment income (on a monthly basis now due to RTI) so they should just make a PAYE coding adjustment or perform a P800 calculation. I thought the Office of Tax Simplification was meant to be reducing the administrative burden from the tax payer but all we have been seeing is the increase as of late with a £100 penalty for late filing, daily £10 penalties of the tax return (> 3 months late), £300 penalty (>6 months late) and a final £300 penalty (> 12 months late). If you think about it, they can earn £1,600 in penalties per person per year. If at least 5% of the 165,000 submit their tax returns 12 months late they could earn an additional £1.32 million from the tax payer.

Q2: J.C, Development Director, asks, “Just to clarify the October and January deadlines mentioned apply to the 2012-2013 tax year - much of the pressure on parents to register doesn't mention this and adds to the confusion.”

Alan McCappin, Bradleys Accountants: This is true. Also the charge only applies to child benefit amounts received after the 7th January 2013 not prior to that date.

Q3: J.R., Director of a web marketing company, asks, “Is it still true that a couple earning £49,999 each would receive this benefit yet a couple earning £50,001 and £1 would not?”

Alan McCappin, Bradleys Accountants: No, both couples would be entitled to receive child benefit but for couple B there will be a claw back of 1% of child benefit paid.

Q5: L.S., Secretary at the Queen's Award for Enterprise, asks:

Does the £50k threshold include one-off, taxable, non-pensionable bonus payments?

What if a pay increase takes salary over £50k, it is likely to come in January, but would be backdated to 1 August. How would this play out?

Should we register, if answers to one or both are yes?

Finally, how do we opt out?

Alan McCappin, Bradleys Accountants:

Yes they would consider bonus payments for the £50,000 threshold.

The pay increase would be reflected on the date it was “received” and not when it was in fact “earned”. But in either case the £50,000 threshold goes by the tax year 6th April 2012 – 5th April 2013. So in either case it would have been included in the same tax year.

Please note that the income tax charge came in with effect from the 7th January 2013. So any child benefit payments received prior to that date i.e (6th April 2012 – 6th January 2013) are not taxable.

You should also note that you that only pay percentage charge for each £100 over the £50,000. So if your salary was £57000, you would pay back 70% of the child benefit received from the 7th January 2013 – 5th April 2013.

Furthermore, you should at least ensure you have made one at least one claim for child benefit to protect your state pension rights until your child reaches the age of 12.

Q6: C.L., Owner at a Digital Media company, asks: I would wager this new benefit implementation costs more to administer than it actually saves in revenue. Far easier to either end child benefit or just pay it to everybody who has children because either way the money goes back into the economy somehow. (Unless it’s spent on the corporate tax dodgers of course) i.e. if you can’t afford kids then it`ll go on essentials and if your a high earner it will go on luxuries.

Alan McCappin: True but I feel most of the administrative burden has been passed to the tax payer and not to the government employees. The HMRC’s move towards online tax return submissions has automated their processes considerably thus requiring less government employees interference and therefore reducing their overall wage cost. So if someone forgets to file their tax return or register for a tax return, it is essentially free money for them in the form of a penalty.

C.L: How do you claim it if you never file a tax return? Many PAYE may not use accountancy, although my father did as PAYE and used Bradleys 20 years ago. Obvious self employed may incorporate it in their annual tax return I guess.

Alan McCappin: Do you mean how to you claim child benefit if you are PAYE? If so, you would just fill out a child benefit application form http://www.hmrc.gov.uk/forms/ch2-online-stubb.htm. You need only register for self-assessment if your earnings exceed £50,000 and either your or your partner has claimed child benefit.

C.L: I`m not sure why, if PAYE, you need self assessment, regardless of the earnings. Maybe I am confusing tax self assessment with child benefit assessment? Two different forms/processes? Personally speaking, if people can’t afford kids if earning over £50k, they need assess their spending habits.

Alan McCappin: I totally agree with you there, they shouldn’t need to register. With access to the monthly RTI data available to the HMRC they should be able to calculate the charge themselves rather than asking the tax payer to complete self-assessments.

In respect to your comment about the couple earning £50,000 each, I would agree they maybe shouldn’t require Child benefit, but remember the £50,000 threshold even affects families where only one parent works. For instance, a couple earning £25,000 each compared to a single parent earning 50,000 will receive more net of tax/NI and also wouldn’t be subject to the Child benefit tax charge.

Thanks, Alan McCappin

Still baffled by the child tax benefit conundrum? The deadline to register for self-assessment after claiming child benefit was 5 October. Around 165,000 parents who were eligible to pay back the benefit have already missed the deadline and now face a fine from HMRC. Although the deadline is past, it is recommended parents register for self assessment as soon as possible to minimise any penalties they may face. Fines for failing to register will be between 10% and 100% of the tax owed. However, HMRC has said that as long as parents register and file their return by January 31 2014, any penalty for missing the deadline will be disregarded.

To register, parents can call HMRC on 0300 200 3310 or fill out the form online.

If you have any uncertainties around your personal tax return, and don’t know what to do, please contact Alan McCappin on 020 8303 0865 for advice today.